Stripe Capital • Hacker News Board

Re: Stripe Capital

#181

Post by subpixel » Thu, Sep 05, 2019, 10:08 PM UTC

jawns wrote: post #25

The way Stripe Capital has structured repayment of the loan -- fixed fee, dynamic loan term -- is is an interesting way to make it hard to compare against other lenders, which typical express their fees through APRs. The term of the loan is variable, and depends on daily sales, but assuming you have a high volume of sales and take out a small loan, the effective APR is going to be through the roof! For instance, supp…

Help me understand why I care about effective APR in a scenario where it has no impact on the amount I am charged? The customer for this product is agreeing to a fixed amount of interest in the form of a “fee” and nothing increases that fee. A customer who wants $25,000 for less will get a line of credit, but will then risk their assets as collateral.

Re: Stripe Capital

#182

Post by GordonS » Thu, Sep 05, 2019, 10:15 PM UTC

zaroth wrote: post #110

pc wrote: post #59

Earlier quoted context omitted.

[Stripe cofounder.] > But one thing strikes me as odd about this whole arrangement. The better a business performs, the quicker it is able to repay the loan, and the higher its effective APR becomes! It's essentially a prepayment penalty in disguise. So you'd better make sure the loan doesn't help your business too much, or you'll end up getting hosed by the loan fee. Yes, this is right -- if your business suddenly s…

It would a nice benefit if you could discount the credit card processing fees during the repayment period. E.g. You charge a 10% upfront fee for the loan, and repay at a 10% rate, from the perspective of the company they’re actually paying 12.9% to Stripe during repayment. If you could pay just the 10% or even if you just got a .5% reduction to 12.4% overall going to Stripe during the repayment period, it becomes mor…

Ah, now this is a great idea!

Stripe reduce their margin slightly on payments - but it makes for a much more compelling sell to potential borrowers.

Re: Stripe Capital

#183

Post by GordonS » Thu, Sep 05, 2019, 10:17 PM UTC

willyg123 wrote: post #99

laurentb wrote: post #78

Earlier quoted context omitted.

In this case, then surely showing a calculator straight on the page allowing people to see what APR they would get based on their payment/sales configuration would make the whole process more transparent and easier to understand by people who might not be savvy enough to understand the nuances then?

I have worked in the small business lending space before. Stripe cannot price in terms of APR because legally, it is not a "loan". It's a purchase of future receivables. If it was a loan, the APR would be considered usurious in most states.

As @pc has been active here, I'd love to hear from him on this - in legal terms, according to your lawyers, is Stripe Capital considered a loan?

Re: Stripe Capital

#184

Post by GordonS » Thu, Sep 05, 2019, 10:19 PM UTC

juliusmusseau wrote: post #149

pc wrote: post #59

Earlier quoted context omitted.

[Stripe cofounder.] > But one thing strikes me as odd about this whole arrangement. The better a business performs, the quicker it is able to repay the loan, and the higher its effective APR becomes! It's essentially a prepayment penalty in disguise. So you'd better make sure the loan doesn't help your business too much, or you'll end up getting hosed by the loan fee. Yes, this is right -- if your business suddenly s…

Very neat idea. But I worry that it's vulnerable to bad people. Got a hefty personal bill coming up, and you're pretty confident your SaaS business will be dead within 6 months but Stripe has no way of knowing based on current numbers? Thinking of getting a divorce (startup or marital)... maybe time to grab the largest advance possible before your soon-to-be ex(-co-founder) realises? The problem is that even if only…

I think the up-front fee would discourage this for that particular segment.

Re: Stripe Capital

#185

Post by eloff » Thu, Sep 05, 2019, 10:19 PM UTC

TuringNYC wrote: post #172

eloff wrote: post #84

Earlier quoted context omitted.

But religion, unlike laws, thrives on technicalities. Some Jews won't push a button in an elevator on the Sabbath, but it's fine if its programmed to stop at every floor.

In a similar way, there is also the Sabbath Wire: http://mentalfloss.com/article/91594/theres-wire-above-manha... 18 miles of translucent wire stretches around NYC called an eruv: On the Sabbath, which is viewed as a day of rest, observant Jewish people aren't allowed to carry anything—books, groceries, even children—in public places (doing so is considered "work"). The eruv encircles much of Manhattan, acting as a s…

Wow. And I thought the elevator was bad.

Re: Stripe Capital

#186

Post by ilamont » Thu, Sep 05, 2019, 10:20 PM UTC

I have a small business. As soon as I hit the 5 year mark, the offers for financing started pouring in. Two entities I deal with a lot for online business purposes (including payment processing) hit me up every week.

In other words, Stripe is not the only one playing in this market, and traditional banks are not the only option.

The repayment approach is interesting, but will it be enough if Stripes' effective rates are too high compared to the competition?

Re: Stripe Capital

#187

Post by robryan » Thu, Sep 05, 2019, 10:21 PM UTC

pc wrote: post #108

laurentb wrote: post #78

Earlier quoted context omitted.

In this case, then surely showing a calculator straight on the page allowing people to see what APR they would get based on their payment/sales configuration would make the whole process more transparent and easier to understand by people who might not be savvy enough to understand the nuances then?

Yeah, we've iterated a lot (and done a lot of customer interviews) to try to figure how to make the presentation as simple-to-understand as possible. It's hard to show a (de facto) APR precisely because it will depend on your subsequent sales. (And showing it could even be confusing because there's no compounding with our fee structure.) All that said, one of the key questions we care about when speaking with custome…

The issue is comparison, a lot of customers are going to have to build their own spreadsheets to try and compare the terms with alternatives. What you have is basically the industry standard for this form of capital, but definitely an opportunity to do better with transparency.

Re: Stripe Capital

#188

Post by GordonS » Thu, Sep 05, 2019, 10:25 PM UTC

dahdum wrote: post #80

adventured wrote: post #56

Earlier quoted context omitted.

I'm guessing that what Stripe is really bringing to the table here, is what they so often do: considerable simplification of annoying, often slow, red-tape-heavy processes. Their entire existence has been built on that. They look for the burr in the saddle. If PayPal had not been so incompetent with their API, Stripe probably wouldn't have had enough of an angle in the beginning to gain broad traction among developer…

I agree they simplified payments, but I don't see how they improved this product over PayPal. Both decide almost instantly and don't require a bunch of documentation. Probably hard to improve on that process, but it does look like they are just playing catch up in this small area of their business.

Well, I for one, given PayPal's notoriety, wouldn't touch their offering with a barge pole.

Stripe has a lot of goodwill - that goes a long way.

Re: Stripe Capital

#189

Post by edwinwee » Thu, Sep 05, 2019, 10:31 PM UTC

rajacombinator wrote: post #180

Stripe’s payments platform is missing some pretty basic functionality that they should probably focus on before pursuing these side project ventures.

What do you think is missing?

Would love to chat more to see if we can fix that. :) edwin@stripe.com

Re: Stripe Capital

#190

Post by chasedehan » Thu, Sep 05, 2019, 10:33 PM UTC

pc wrote: post #59

jawns wrote: post #25

The way Stripe Capital has structured repayment of the loan -- fixed fee, dynamic loan term -- is is an interesting way to make it hard to compare against other lenders, which typical express their fees through APRs. The term of the loan is variable, and depends on daily sales, but assuming you have a high volume of sales and take out a small loan, the effective APR is going to be through the roof! For instance, supp…

[Stripe cofounder.] > But one thing strikes me as odd about this whole arrangement. The better a business performs, the quicker it is able to repay the loan, and the higher its effective APR becomes! It's essentially a prepayment penalty in disguise. So you'd better make sure the loan doesn't help your business too much, or you'll end up getting hosed by the loan fee. Yes, this is right -- if your business suddenly s…

While at first I saw this announcement and applauded (it seems like something Stripe would be great at administering), the structure of these loans is almost exactly the same as a payday loan, even if the APR is dramatically less.

What is crazy, is how eerily similar Patrick's response is with the Payday Industry's response about why Payday Loans are good for consumers.

>the downside risk of credit obligations they can't meet ... substantially outweighs the theoretical "risk" of a higher effective APR.

"The $15 cost of a $100 payday loan also pales in comparison with the lost income when a car is out of commission and a job lost. Good payday lenders clearly disclose their loan terms and conditions, including the dollar amount of any fees and the APR."[1] Payday loans are clearly bad for the consumer, even as much as the industry tries to defend it.

[1]https://www.americanbanker.com/opinion/why-payday-loans-are-...